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U.S. v. Conley

August 1, 1996

UNITED STATES OF AMERICA

v.

JOHN F. "DUFFY" CONLEY; WILLIAM C. CURTIN; SHEILA F. SMITH; JOHN FRANCIS "JACK" CONLEY; THOMAS "BUD" MCGRATH; MARK A. ABBOTT; THOMAS ROSSI; WILLIAM STEINHART; ROBERTA FLEAGLE; ROBIN SPRATT; MONICA C. KAIL; WILLIAM J. REED; JOANNE T. SMITH; KENNETH "RON" GOODWIN; LAWRENCE N. "NEUDY" DEMINO, SR.; CHRISTOPHER "CHRIS" KAIL; JOSEPH A. DEVITA; FRANK GAROFALO; THOMAS D. CIOCCO; MICHAEL SUKALY; PHILLIP M. "MIKE" FERRELL; ANESTOS "NAZ" RODITES; WILLIAM E. RUSIN

JOHN F. "DUFFY" CONLEY,

APPELLANT



BEFORE: GREENBERG, ALITO, and MCKEE, Circuit Judges

GREENBERG, Circuit Judge.

On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Crim No. 91-00178-1)

Argued May 6, 1996

(Filed: August 1, 1996)

OPINION OF THE COURT

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

A. Factual Background

John F. Conley appeals from a judgment of conviction and sentence entered in this criminal case involving gambling and money laundering on September 29, 1995. This case requires us to determine the constitutionality of section 1B1.2(d) of the United States Sentencing Guidelines. That provision, with its accompanying application note, note 5, requires the sentencing court to determine beyond a reasonable doubt the objects of a multi-object conspiracy after a jury returns a general guilty verdict on the conspiracy charge which does not specify the objectives of the conspiracy. Conley argues that permitting the court to determine the objectives of the conspiracy violates his Sixth Amendment right to jury trial and the Due Process Clause of the Fifth Amendment. In addition, he raises two claims not related to sentencing matters. Because we find section 1B1.2(d) constitutional and reject his other claims, we will affirm.

We set forth the facts in the light most favorable to the government as the verdict winner, though we observe that the relevant facts are not contested seriously. United States v. Pungitore, 910 F.2d 1084, 1097 (3rd Cir. 1990), cert. denied, 500 U.S. 915, 111 S.Ct. 2009 (1991). Conley owned and operated the largest video poker machine gambling business in the Pittsburgh, Pennsylvania, area. *fn1 At the height of his business, Conley owned thousands of video poker machines in hundreds of businesses throughout western Pennsylvania. *fn2 During the period covered by the indictment Conley made millions of dollars from this business.

Conley operated his gambling business by purchasing video poker machines equipped for gambling and placing them in business establishments with the understanding that they would be used for gambling. The machines had knock-off devices to eliminate points after a payoff and internal accounting mechanisms to allow Conley and the business owners to calculate their profits. Conley persuaded business owners to install his video poker machines by offering to split the gambling proceeds with the owners, supplying start-up money, and promising to provide an attorney and to pay any fines if the owners got into trouble with law enforcement authorities for operating the machines as gambling devices. Conley candidly testified at the trial that his business was a gambling business and all of his video poker machines were used for gambling. His defense was that he operated openly and even obtained municipal licenses for some of the machines. In essence, he regarded his activities as legal.

As the gambling business grew, Conley hired employees to solicit new locations, to move and service his video poker machines, and to collect his share of the proceeds from his hundreds of locations. Some of the 22 persons indicted with him were his employees and others were owners or employees of businesses where his video poker machines were used as gambling devices. To facilitate his operations, Conley opened accounts at the Pittsburgh National Bank for the deposits of his gambling proceeds. The scope of Conley's operation is demonstrated by the fact that between 1985 and 1990 he or his employees deposited over $10,000,000 in the accounts, about 93-94% of which was from video poker machine gambling. Conley used the money in these two accounts to promote his gambling business.

In addition to soliciting business establishments to become part of his gambling operation, Conley purchased buildings and businesses for use of video poker machines. He either paid salaries or wages to his employees at these locations or compensated them on a percentage basis. Conley collected large sums from his most profitable locations, the most notable one being a snack shop in McKees Rocks, Pennsylvania, called Terry's Snack Shop.

Not surprisingly Conley's wide-open gambling business came to the attention of law enforcement authorities. In 1987, the Pittsburgh police arrested Conley for his part in video poker machine gambling at a particular location. Conley was tried in March 1988 in the Court of Common Pleas of Allegheny County on charges arising from this operation and was found guilty of violating the Pennsylvania anti-gambling law, 18 Pa. Con. Stat. Ann. Section(s) 5513 (1983). The court sentenced Conley to pay a $1,000 fine and to serve two years on probation.

Conley obviously regarded the fine as nothing more than a trivial cost of doing business because he continued his operations. As a result, local, state and federal law enforcement officials began investigating him. These investigations led to searches of his offices and the seizure of hundreds of his video poker machines between 1988 and 1991. A search on September 23, 1988, led to a state grand jury indicting Conley on gambling charges for operating his video poker machine gambling business but the indictment eventually was dismissed.

The law enforcement pressure caused Conley and his codefendants to take measures to thwart the investigatory efforts. Informants would warn Conley of impending law enforcement raids and Conley or one of his employees in turn would warn affected locations so that video poker machines could be removed. Conley instructed others to remove the money contained in his video poker machines, and, on one occasion, all the information in Conley's computer about his video poker machines was "dumped" onto a computer disk which then was hidden in an employee's car.

Furthermore, as a result of increasing law enforcement scrutiny, Conley made changes in how he conducted his business. Thus, Conley instructed his employees on a new method to take the readings off video poker machines designed to prevent law enforcement authorities from accessing this information. After law enforcement authorities started their searches, Conley's collectors no longer took the gambling proceeds to Conley's offices but, instead, at Conley's instructions, took the money to other locations or directly to the bank for deposit. Furthermore, Conley's location owners and operators instituted a policy not to make payoffs to persons they did not know. In one instance Conley counseled an employee to be "careful not to pay a cop or a stranger." Conley, who obviously was not lacking in nerve, on one occasion secretly entered a premises in which United States marshals had secured seized video poker machines and removed the knock-off devices from them.

The law enforcement pressure caused Conley to reorganize his gambling business to make his involvement less apparent. Following a large number of federal searches, Conley transferred ownership of his video poker machines to three companies he had created. Conley installed an employee as a front owner in each of these companies but he retained effective control over them, and their employees and assets. At the same time, Conley created a company to service the video poker machines transferred to the three newly formed companies. Conley then instructed the nominal owners of the three new vending companies to make monthly payments to the service company from their gambling proceeds. Conley determined the amounts of these payments without regard to the level of services rendered. At the time he created the three new companies, Conley transferred the title to his best gambling location, Terry's Snack Shop, to the woman who ran it for him.

B. Procedural History

The foregoing activities led to a federal grand jury in the Western District of Pennsylvania returning on September 26, 1991, a 29- count indictment charging 23 individuals with participation in an illegal gambling operation involving video poker machines. The indictment identified Conley as the central figure in an extensive illegal video poker machine gambling business and covered the period from 1984 through September 26, 1991.

Count one charged Conley and his 22 co-defendants with conspiracy to conduct an illegal gambling business and to launder the proceeds therefrom in violation of 18 U.S.C. Section(s) 371. Count two charged Conley and his 22 co-defendants with conducting an illegal gambling business in violation of 18 U.S.C. Section(s) 1955 and 2. One "part and object" of the conspiracy was that Conley and his co-conspirators conducted an illegal gambling business involving video poker machines "in violation of the laws of the Commonwealth of Pennsylvania" which, in turn, was in violation of 18 U.S.C. Section(s) 1955. Count one also charged that a "further" "part and object" of the conspiracy was to engage in money laundering to promote the illegal gambling business in violation of 18 U.S.C. 1956(a)(1)(A).

The conspiracy count charged that "an essential part of the illegal gambling business" involved the division of gambling proceeds with a person at the video poker machine locations, the delivery of Conley's share of the gambling proceeds to certain of his employees, and the deposit of the proceeds into bank accounts Conley controlled. Count one also charged that Conley engaged in money laundering activities with the intent to promote his illegal gambling business and that Conley used illegal gambling proceeds to promote his illegal gambling business by purchasing more video poker machines, paying his employees, and depositing the proceeds in the bank. In addition, the overt acts of the conspiracy to launder money included numerous payments to Conley's video poker machine service company. The remaining 27 counts of the indictment charged certain of the defendants with interstate travel to carry on an unlawful activity in violation of 18 U.S.C. Section(s) 1952(a)(3), interstate transportation of gambling devices in violation of 15 U.S.C. Section(s) 1172 and 1176, and money laundering in violation of 18 U.S.C. Section(s) 1956.

The proceedings after the indictment was returned were complex. Over the next three years, the district court issued numerous published opinions on scores of motions and we have issued two published opinions in this case. United States v. Conley, 37 F.3d 970 (3d Cir. 1994); United States v. Conley, 4 F.3d 1200 (3d Cir. 1993), cert. denied, 114 S.Ct. 1218 (1994). *fn3 Two of the district court's opinions are particularly significant. In United States v. Conley, 859 F. Supp. 909 (W.D. Pa. 1994), the district court rejected Conley's motions to dismiss the indictment on the grounds that video poker is de facto legal, he was prosecuted selectively, and the government engaged in misleading conduct ("entrapment by estoppel") thereby violating his due ...


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